net unrealized appreciation
I have a prospect with a P&G profit sharing plan. They just retired after 25-30 years, and have around 200k in
“Company Contributions-Preferred Stock. (It looks as if the “stock cost” is about $16 and a current price/share is $88, around 2000 shares) there is another 200k in “Company Contributions Cash”.
I am under the understanding that if she moves the entire amount/account away from P&G (200k of Preferred Stock into TOD/ non-qualified account and the other into an IRA) that they would only pay ordinary income taxes on the original cost basis of $16, which would be about $32,000 ($16X2000 shares).
Any money they later pull from the non-qualified account would be taxed as long term capital gains (I’m asking)? Obviously the IRA portion would be taxed as ordinary income.
The question is, how do I move the money and not mess up? I am thinking that opening 2 accounts, IRA and non-IRA, would do it. But how to get P&G to send 2 checks? (or any profit sharing plan?)
What are some publications/documentation I could get my hands on to verify to myself and to possibly their tax person?
I hope I have been clear about what help I need,
Jeff
Permalink Submitted by Alan - IRA critic on Tue, 2019-02-12 02:11
Permalink Submitted by Laura Davitt on Fri, 2019-06-07 19:56
Along similar lines as the original question, I have a follow-up. The scenario is that an employee who is over 59.5 and is retiring wishes to take advantage of NUA on her preferred shares of stock under her Profit Sharing Trust/ESOP. There are also common shares of stock in this plan. She also holds mutual funds in a 401k. Both the Profit Sharing Trust/ESOP and 401(k) are sponsored by the same employer. Our goal is that she will utilize the NUA for the preferred shares ONLY which will be directly transferred to a taxable brokerage account which she will pay ordinary income on the basis which is very low ($6.82 per share basis vs $108.77 current FMV). She will also roll over the common shares in-kind to and IRA. The 401k will be rolled to the same IRA. I believe we have hit all of the requirements that this is the first distribution after her triggering events, the account balances of both will be zero at the end of 2019 lump sum by lump sum distributions, and the employer stock (NUA) will be transferred in-kind to the brokerage account. My question is: what if the employer later funds a contribution in 2020 FOR 2019. Will the subsequent contribution in the next year blow up the NUA? I wouldn’t think so but I can’t find any resource that addresses this specific question.
Permalink Submitted by Alan - IRA critic on Fri, 2019-06-07 23:14
The employee will have completed a qualified LSD in 2019 of the entire balance of like plans. A later contribution does not change the NUA potential of the shares already distributed. That said, it is always advisable to ask the plan administrator to confirm that one 1099R for 2019 will show the cost basis and NUA of the shares distributed and will not be later corrected due to the later contribution. I am assuming that any contribution of employer shares made in 2020 will be rolled over to an IRA since the cost basis of such employer shares will be too high for NUA.